M&A becoming a requirement to compete in security integration market
The world physical security product business will grow by a compound annual growth rate (CAGR) of 10.25 percent over the next five years, reaching $51.38 billion by 2023. This is the fastest rate of growth for the last decade within the three primary physical security product sectors – video surveillance, access control and intruder alarms/perimeter protection.
The introduction of new technologies is the prime driver that is creating better performing and more reliable products that are capable of reducing the cost of ownership.
Independent systems integrators comprise the main route to market taking around a 50 percent share of the product sales across the world market. However, the structure of the market is very fragmented and unless it consolidates, it will hold up the progress of coping with the technology and commercial challenges that lie ahead.
The technologies that are now being introduced to realize smart buildings need to communicate on one single two-way network that joins all the sensors, controllers and actuators in buildings together. Although a lot of this technology will reside within the hardware and software platforms, it will be the integrator’s job to install and make sure that the system is not vulnerable to cyber-attacks. The average size of a contract will rise and buyers will require that their suppliers have a strong financial base.
This will require integrators to acquire this expertise and scale through merger and acquisition and/or strategic partnerships. Security integrators in the U.S. have adopted strategic acquisitions as a major platform to grow their business and have speeded up the process in recent years. It is long overdue for the technology challenges that integrators are now facing, which requires scale to finance and minimum size to operate profitably.
Convergint Technologies over the last 10 years has shown the way and, in the last two years, they have acquired over 20 companies and have now established a footprint across the globe. We know of no other independent security integrator that has this stature across the Western world and covers virtually all the technical services in buildings. Convergint was acquired by a fund managed by the Private Equity Group of Ares Management L.P in February this year, and we assume they have deep pockets at least as deep as their previous owner Private Equity Company KRG Capital Portfolio Company.
Today, the business of integrating all the technical services in buildings largely belongs to integrators but there is an army of IT orientated businesses out their getting involved in the Building Internet of Things (BIoT) business and they will play an important role in bringing it to market. Strategic alliances with these companies would be mutually beneficial. After all, they know the potential clients and have their confidence.
About the Author:
Jim McHale is Director of UK-based market research firm Memoori.